Does commodity hedging with derivatives reduce stock price volatility?

Ningli Wang and Qichong Zhou

Finance Research Letters, 2022, vol. 50, issue C

Abstract: Many companies use derivative contracts to hedge their commodity natural exposure, which has been a popular risk management tool for centuries. However, the public debate on whether these derivative activities actually help companies reduce risk is ongoing. We examine this question with data from public companies in the U.S. from 2010 to 2019. Our empirical results show significant evidence that hedging commodity positions reduces stock price volatility. Furthermore, the effect is heterogeneous across sectors and companies. The utilities sector benefits the most from commodity hedging, and companies with smaller sizes, higher valuations, and better profitability benefit more from commodity hedging.

Keywords: Hedging; Commodities; Financial derivatives; Stock price volatility; Risk management (search for similar items in EconPapers)
Date: 2022
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S1544612322005001
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:finlet:v:50:y:2022:i:c:s1544612322005001

DOI: 10.1016/j.frl.2022.103321

Access Statistics for this article

Finance Research Letters is currently edited by R. Gençay

More articles in Finance Research Letters from Elsevier
Bibliographic data for series maintained by Catherine Liu ().